bilateral aid good governance

7/30/2019 Bilateral Aid Good Governance

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IS BILATERAL AID RESPONDING TO GOOD

GOVERNANCE IN AFRICA?

By

Kwabena Gyimah-Brempong, Timothy M. Shaw & Val Samonis

(An EPANET Working Paper)


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IS BILATERAL AID RESPONDING TO GOOD GOVERNANCE IN AFRICA?

1. IntroductionBilateral aid has been an important development instrument through which donors support as well as

influence development in Less Developed Countries (LDCs). Developed countries (DCs) have pledged tosubstantially increase aid to LDCs in order to achieve the Millennium Development Goals (MDGs). As a

result, bilateral aid flows from Development Aid Committee (DAC) countries to LDCs is expected to

reach 120 billion US dollars (USD) in 2010. For African countries, net bilateral aid flows from DAC

countries is expected to reach anywhere between 42 to 50 billion USD in 2010. Indeed as table 1 and

figure 1 show, net aggregate aid flows to Africa increased annually in the 1990s reaching 49.08 billion

USD in 2009, the last year for which data is fully available.1

Table A1 in the appendix shows the trend in decade average flows of net ODA in 2008 real USD to Africa

over the 1970 to 2009 by country. The data shows a gradual increase in real net ODA flows to Africa

over the period. The date shows that in the first decade of the 21st century, the 10 largest recipient of

ODA in Africa are Ethiopia, Tanzania, Sudan, Mozambique, Congo DRC, Uganda, Nigeria, Kenya, Ghana,

and Zambia. These countries receive an average of 44% of ODA that goes to Africa. With the possible

exception of Ghana and Tanzania, these leading recipients have not been shown to demonstrate good

governance in their policies. Indeed Human Rights Watch suggests that some countries use aid as

instrument of repressing their citizens.2 The 10 leading bilateral donors to Africa over the period are the

United States, France, United Kingdom, Germany, Japan, Netherlands, Canada, Spain, Sweden, and

Norway. A relatively large part of ODA flows in recent years has gone to fund the social sector, followed

general program aid and production aid in that order. There has been a gradual shift towards general

program and multi sector aid as donors increasingly stress the importance of country ownership ofdevelopment programs.

While donors have increased the flow of aid to African and LDCs generally, they have also stressed the

need for improved governance as a condition for allocating aid3. It also appears that the increased aid

flows to Africa coincided with the period of increased attention by donors to issues of governance in

African countries. To what extent is this relationship association causal or just mere coincidence? Have

donors followed the rhetoric on improved governance by rewarding countries that have good/

improving governance how have they increased the funding of programs that lead to improved

governance? Within the African context, there has not been an evaluation of whether bilateral aid flows

responds positively to good (improved) governance.

Aid effectiveness studies conclude that aid is effective in fostering development (economic growth)

only if the institutional environment (governance generally) is appropriate. Following the publication of

the World Bank's 1998 report, Assessing Aid: What Works, What Doesn't, and Why? and the 2002

Monterey Declaration, several bilateral and multilateral aid donors adopted the idea that aid should be

conditioned on good governance in recipient countries. The European Commission (EC) for example, in

2006 established the Governance Incentive Tranche in its aid program to reward countries with better (or

improving) governance with more additional aid. Similarly, the US Millennium Challenge Account (MCA)

has set up specific governance criteria that countries must meet before they qualify to apply for

Millennium Challenge Grants (MCGs). African countries have embraced the concept of improving


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governance as the basis for Africa's development. The New Partnership for Africa's Developments

(NEPAD) first principle states that African leaders recognize that there cannot be sustainable

development without good leadership and democratic, participatory governance. The African Peer

Review Mechanism (APRM) that monitors and encourages good governance as a pre-requisite for

sustained development is a manifestation of NEPAD's commitment to good governance.

The adoption of good governance as a conditioning factor by donors and the acceptance of African

countries of this condition should suggest that countries with better or improving governance should

receive more (or increased) aid than those that do not improve governance. This pattern of allocation is

efficient because it allocates aid to where it is most productive; it also provides incentives for recipients

to improve the quality of governance assuming that is one of the objectives of donors. Despite the

pronouncements of donors and recipients as taking governance seriously in aid allocation, the limited

evidence available suggests that donors have generally not followed through by allocating more aid to

countries with better or improved governance. For example, many studies find no relationship between

good governance and aid allocation (Alesina and Weber: 2002, Berthelemy and Tichit: 2004, Molenaersand Nijs: 2009, and Gani: 2009, among others). Busse and Gronin, 2009 suggest that increased aid leads

to poor governance in recipient countries although they do not investigate the mechanisms through

which this occurs. On the other hand, Presbito (2009) concludes that while debt forgiveness does not

generally lead to increased economic growth, there is evidence that donors are rewarding countries that

improve their institutions with debt forgiveness.

There are a few studies inconclusive and contradictory studies on the relationship between aid flows

and governance in the world generally. However, there are no studies that focus on Africa. The few

studies mentioned above are cross country international studies or limited to parts of the developing

world other than Africa. This cries out for more studies on the relationship between governance and

external aid. Given the high reliance of most African countries on aid (reaching 10% of GDP for some

African countries) to finance development or recurrent expenditures, it may be important to investigate

how conditioning aid on (or conditions) governance affects aid flows, hence development generally.

Another reason for this study is the heterogeneity of the experiences of African countries that need

support on account of governance. African countries can generally be classified into three categories:

Countries that have always had relatively good governance that need to be rewarded, there are

countries that previously had bad governance and are reforming that need to be encouraged and

supported, and finally, there are countries emerging from conflict or failed (fragile) state status.

Certainly, a one size fits all approach will not work for such a diverse group. A study that recognizesthese differences is therefore called for.

1.2 Conceptual Issues

The role of governance in the allocation of aid began to emerge in the early 1990s at the end of the cold

war. The process was given added impetus with the publication of the World Banks, and the influential

paper by Burnside and Dollar (2000). Although different donors have had variations of governance as a

condition for aid flows, bilateral aid donors put emphasis and harmonized aid policies at the end of the

20th century and at the beginning of the 21st century. For example, the EU policy stance on governance

was approved by the EU Council, the EU Commission, and the EU Parliament in 2005. EU developmentassistance was to be conditioned on the quality of governance, human rights, and the support for


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institutional reforms. Each Country Strategic Paper (CSP) should include an analysis of political

development. The political development should consist of a set of political indicators that are similar to

the World Banks Governance Indicators. While countries are to be punished for poor governance,

the EU policy also looks at factors that impede governance in recipient countries and develop packages

to overcome them. In the special case of fragile states, the policy emphasis on national stability rather

than democratic governance in the allocation of aid.

In a lot of ways, the EU policy on governance is contradictory. While it seeks to punish countries for not

improving governance, it also seems to use aid as a mechanism for building institutions for governance,

thus making governance a goal to be achieved with aid. In a special issue of the Third World Quarterly

that analyzes EU policies, Taylor argue that the technocratic approach to governance adopted by the EU

essentially validates and perpetuate the personalized governing style of African leaders rather than

encourage the development of genuine democracy. Second, despite the EU rhetoric on governance as a

condition for aid allocation, actual aid allocation by the EU contradicts the stated good governance

policy.

Two conceptual problems arise in the study of the relationship between aid flows and good governance.

Conceptually donors can treat aid in one of two ways: (i) as a condition for providing aid or (ii) as an

outcome to be pursued with aid. If good governance is treated as a condition for receiving aid, then it

stands to reason that countries with good (improving) governance should get more aid. On the other

hand, if governance is considered an objective outcome for aid giving, then countries with poor

governance that promise to improve governance should be given more aid to improve governance and

countries with good governance will have less need for aid to reform governance. These objectives are

illustrated by the aid/governance relationships chosen by MCA and the DFID's Drivers of Development

(DD) strategy. While the former insists on recipients achieving a given level of governance before

getting aid, the latter provides increased aid even if governance is poor so long as the objective is to

improve governance. There is an inherent tension between these two treatments of governance in aid

allocation, even from the same donor.

A second problem with the study of the relationship between aid and governance is how one defines

and measures governance. There are different conceptions of governance partly because governance is

a broad concept with multiple components. Good governance is steeped in a countrys history and

culture of the particular country, making it difficult for a universal definition and measurement of good

governance. We discuss the concepts of good governance below. Different countries may emphasizedifferent components of governance. Often donor countries and recipient countries may disagree on

what constitute good governance and this may lead to a misunderstanding between the two.

Governance is a multi-faceted concept and different donors have tended to focus on different aspects

of governance. For example, multi-lateral donors, such as the World Bank define and focus on the

efficiency of the government as the relevant measure of governance, US tends to focus on electoral

democracy and the protection of private property rights as its measure of governance while most

European countries focus on human rights, democracy broadlydefined and poverty reduction generally as

their measure of governance. Such freedom to choose from the broad definition of governance makes

the evaluation of the relationship between governance and aid flows based on a much narrowerdefinition of governance very difficult. While a country might have ``good governance" on account of


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government efficiency, it may fail on account of human rights and voice and accountability. A study of

the response of aid to governance should therefore take a broader view of the definition of governance.

Unfortunately, the few studies conducted on the subject have adopted one of the more restricted

definitions of governance. We intend to use a much broader definition of governance than has been

used in the literature.

In addition to not specifically addressing how aid flows respond to governance in Africa, previous

studies have focused on cross country analysis which may be incapable of detecting how donors react

to changes in governance in a particular country. We address this by including a number of detailed

country studies on how aid flows have responded to changes in governance in these countries over

time.

1.3 Objectives of the Study

This paper investigates how the flow of bilateral aid to Africa has responded to the level and changes ingovernance in African countries since 1980. This paper investigates whether bilateral aid to African

countries has responded positively to good (or improved) governance. Specifically, the paper

investigates whether African countries that improve their governance are rewarded with more and

better quality aid; it also looks at the other alternative: whether African countries that receive more aid

respond by improving their governance structures. Our study focuses on bilateral aid because we

believe that bilateral donors have greater latitude in setting their own aid agenda and modalities to suit

their preferences as opposed to the policies of multi-lateral aid donors whose policies are likely to the

results of negotiations which might result in an outcome that does not reflect the preferences of any

party to the negotiation. A study of how aid responds to changes in governance should exclude

emergency humanitarian aid since by definition this type of aid is given in response to emergencies

without any condition.2 Issues the study will attempt to answer include, but not limited to, the

following:

Does aid respond to improved governance in Africa? What has been the record of linking aid toimproved governance in Africa at the aggregate level?

Do donors view governance as a condition of giving aid or they view governance as an objectiveto be achieved with the help of aid? How do different donors treat governance in aid allocation?

Which donors have responded to improved governance in African countries by increasing the

quantity and quality of aid flows? Do donors agree on the definition and operationalization of governance? Which aspects of

governance do different donors stress? How does the definition of governance affect the aid

policies of donors as well as the reception of African countries?

How have bilateral aid donors changed, if at all, their governance conditionalities in the presenceof the current global financial crisis?

Case Study of donor policies and how these policies and practices have changed with theadoption of governance as an aid allocation condition (Canada)

Are there new entrants into the aid market in Africa and what is the effect of the entry ofthese Emerging donors (Brazil, China, India, the Gulf States, major private Foundations [Gates,

Clinton, Carter, Ford, etc.]) on the governance agenda of traditional bilateral donors?


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Case Studies: Africa (Ghana, Ethiopia). These countries are major recipients of aid in Africa withrepresenting a case of good or improving governance and the other not so well in terms of

governance.

Major Lessons for Africa and the donor countries.We have chosen 1980 as the start date in order to give us enough lead time to assess changes in aid

flows in response to changes in governance in Africa.

1.4 Methodology

The approach we take in this study is a combination of both cross-national panel regressions and

country case studies. We will use panel regression analysis to investigate the overall response of aid

flows to Africa has responded to governance has been. We will also look at how governance in Africa

has responded to aid flows since donors made governance a priority area. In this analysis, we will

adopt the World Bank's 6 point measure of governance---rule of law, control of corruption, voice andaccountability, government effectiveness, regulatory quality, and political stability and lack of

violence.

Besides, the cross country study, the paper will also include time series analyses of aid flows to

specific group of African countries to see how donors have responded to changes in governance with

changes in aid flows to these countries over time. This allows us to trace the dynamics of the

relationship between aid flows and governance in Africa over time in specific institutional and

cultural environments than will be possible in the cross-country panel analysis. We will choose the

countries to represent those with good or improving governance, those with not so good

governance or governance structures that are not improving, and the countries in special

circumstances of emerging from conflict.

The paper will also examine how the aid policies and practices of a sample of donor countries change

in response to the emergence of governance as an important variable in aid allocation. In particular,

we will be interested in the definition and measure of governance adopted by different donors and

how the policies on governance are implemented by these donors and how the policy

implementation has affected aid flows to Africa over time. The sample of donors will be chosen to

reflect a representation of the various important bilateral aid donors to Africa.

The rest of the paper is organized as follows. Section 1 discusses the relationship between aggregate

bilateral aid flows to Africa in response the governance position of donors; section 2 discusses how

donors define and measure governance and whether donors agree on a common measure of

governance, section 3 is devoted to a discussion of how African countries have responded to donor

policies on governance, section 4 varieties of aid and forms of governance for development needs of

Africa in the 21st century, section 5 discusses the possible effects of a new vehicle of aid delivery (Cash

on delivery) will work and Affect African countries; section 6 provide African case studies while

section 7 draws lessons and discusses the road ahead. An introductory as well as a summary chapter

will link the various aspects of the paper and draw conclusions. In addition the summary chapter will

draw and discuss policy lessons for African countries and donors alike.


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electoral democracy, market economies and private property rights in its conception of governance

for the purposed of giving aid. Poverty reduction and human rights are secondary for its aid

allocation considerations. The MCA for example sets strict universal standards to be achieved by

recipient countries before that can apply for an MCA grant. A country signs a compact agreement

with MCC if a country scores high on a selection of these indicators. A recipient country is required to

set up a special purpose legal entity that will be accountable for implementing the compact

programs. If a country does not qualify for a compact based on performance on these criteria but

shows a positive trend on these indicators, it can be eligible for a small grant called the threshold

program.5

Box 1. Selection Indicators for MCA

For the US therefore, governance is more synonymous with the World Banks conception as one of

providing the capacity to efficiently and effectively providing services and formulating and

implementing economic policies rather than the broader conception of governance that includes

both legal, political and institutional development as well concern with human rights.

On the other hand, European countries emphasize poverty reduction, human rights, broader

participation in decision making as well as the benefits of economic growth, and efficiency in their

conception of governance. They also recognize that African countries may not have the governance

system of developed countries such as Switzerland or Sweden before allocating aid but rather look

at governance as part of the development process; hence they are willing to fund the development

of governance as part of the development aid package. As a result, they offer positive reinforcementfor improvement in governance as evidenced by the EUs enthusiastic support of the NEPAD initiative

on governance as well as the African Peer Review Mechanism (APRM).

However, even within the EU, there are subtle differences in the conception f governance as member

countries tend to put different emphasis on different aspects of the subset of components the EU

focuses on. For example, the UK emphasizes poverty reduction more than anything else in its aid

allocation hence its governance criterion for aid allocation is to what extend government follow

policies that decrease poverty. In this connection, it looks to understand the peculiarities of a

country and who (what) the agents of change and use those agents to develop its programs of

change for that country. DfID understands that governance is shaped by the history and customsand a country hence there is no universal standards of good governance. Norway on the other hand

The MCA has 17 indicators which are used to judge a countrys eligibility for a grant.

These are civil liberties, political rights, voice and accountability, government

effectiveness, rule of law, control of corruption, immunization rate, public expenditure on

h health, girls primary education completion rate, public expenditure on health, natural

resource management, inflation rate, trade policy, land rights and access index,

regulatory quality, fiscal policy, and business start-up. It is clear from the list that the

indicators are the expanded versions of the World Banks governance indicators. It is also

clear that most of the indicators focus on efficiency and economic growth rather than on

human rights, poverty reduction and other manifestations of the broader conception of

governance.


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puts more emphasis on measures to promote peace and stability, human rights, support for political

elections, and establishment of legal processes. For example in the 1990s, it supported multiparty

elections in Zambia, Ethiopia, and Uganda as well military demobilization in Mali.

This implication of the differing conception of governance by donors is that African countries are

faced with a bewildering array of conception of governance as they receive aid from several

countries with different conceptions of good governance at the same time. This makes it difficult for

African countries to respond to the various governance conditions from different donors.

3. Donors Treatment of Bilateral AidThis section discusses two inter-related issues: (i) whether donors insist on governance as a condition

for giving aid and if so, how has aid flows to Africa responded to changes in governance across

countries and through time? (ii) If donors consider governance in giving aid, which aspect of

governance do different donors emphasize in giving aid to African countries? The discussion will beboth theoretical and empirical. The first sub-section focuses on how donors incorporate governance

in their aid polices and how this has changed over time while the second sub-section presents

empirical evidence of hoe aid flows to Africa has responded to governance. The first part of this

section uses a descriptive analysis to evaluate the policy position taken by various donors on the use

of governance as a condition for aid allocation. The second part then uses panel data on bilateral aid

flows to Africa from 1980 to 2009 to investigate to what extent aid flows to Africa respond to

changes in governance across countries and through time.

3.2

Empirical Evidence

This subsection investigates to what extent bilateral aid to Africa has responded to governance. To

do so we estimate determinants of aid equation using panel data from 53 African countries over the

1990 to 2009 period. We estimate a simple equation of aid determinant equation similar to the one

estimated by Alesina and Dollar (2000) with different measures of governance as added regressors.

The principal measures of governance we use are the six governance indices in the World Banks

Governance Matters VI: government effectiveness (goveffct), political stability (polstab), regulatory

quality (reqqual), rule of law (rulelaw), voice and accountability (voice), and control of corruption

(corruptcont).6 The equation is estimated for each governance indicator using both aggregate

bilateral aid data as well as bilateral aid from each of the major donors. We first present estimates ofthe relationship between aggregate bilateral aid flows to Africa and governance indicators followed

by estimates of the relationship between bilateral aid to African from selected donors and

governance.

Before we present the estimates, we offer a note of caution. The estimates presented in this section

should be treated as suggestive at best. The problem of data adequacy reliability in Africa is well

known. Second, the data used for these estimates come from DAC sources; certainly DAC is not the

only source of aid flows to Africa. Given the increasing flows of aid from non DAC countries as well as

private foundations, such as Gates combined with the relative decrease in aid flows from traditional

sources, it is possible that the data used for these estimates may measure aid flows with errors hence


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may impart biases to the estimated relationship between aid flows and governance. We note

however, that we are more interested in the direction of the correlation between aid flows and

governance rather than in the magnitude of the coefficients of the estimates. We feel therefore that

the estimates presented below provide an indication of the nature of the relationship between

bilateral aid flows to African and governance. We stress that what we estimate here is a correlation

between aid flows and governance; we make no attempt to imply causation between the two

variables in this study.

Table 1: Coefficient estimates of governance variables: aggregate data

Fixed Effect DPD

governance coefficient t-statistic coefficient t-statistic

Goveffect 0.2919* 1.83 0.3290*** 14.75

Polstab 0.0630 0.54 0.7957*** 25.49

Regqual 0.2519** 2.06 0.2869*** 20.13

Rulelaw 0.3192** 2.09 1.3064*** 24.00

Voice 0.1467 1.59 0.6459*** 30.14

corruptcont 0.1709 0.55 0.3186*** 13.23*** significant at = .01; ** significant = .05, * significant at = .10.

Table 1 presents the estimates for the various governance indices using aggregate bilateral aid data.

Column 2 and 3 present the coefficients from the fixed effects (FE) estimator while column 4 and 5

presents the estimates from the dynamic panel data (DPD) estimator. In the presence of dynamics

and possible endogenous regressors, the FE estimator is not appropriate but we present it for

purposes of comparison. In general, the DPD estimates suggest that at the margin, aid flows to

Africa is positively correlated with all measures of governance, all things equal. The elasticity of aid

flows with respect to governance ranges from a low of 0.28 for regulatory quality to a high of 1.3 for

rule of law.

The estimates are consistent with the results obtained by Alesina and Dollar (2000) and Lewis (2003)

and Bandyopadhyay and Wall (2007) who find that, at the margins, bilateral aid flows to developing

countries responds positively to improvements in governance. We note that with the exception of

the rule of law, the elasticity of aggregate bilateral aid flows to Africa with respect to governance is

very low. The results are also consistent with the results of Diarra and Plane (2011) who find positive

correlations between all types of aid flows to the developing world and the World Banks governance

measures.

The estimates presented in table 1 are based on aggregate bilateral aid from all donors. It is possible

that each donor puts different emphasis on governance in aid allocation and those different donors

emphasize different aspects of governance. Under these circumstances, the use of aggregate

bilateral aid as our dependent variable may lead to biased estimates of the importance donors put on

governance when making aid decisions. To test the possibility that different donors put different

emphasis on governance when making bilateral aid allocations, we re-estimate the bilateral aid with

bilateral aid from each country as the dependent variable for selected bilateral donors (Denmark,

France, Japan, The Netherlands, U.K., and the U.S.) for all measures of governance.7


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Table 2: Coefficient Estimates of governance variables: individual donors

Denmark France Japan Netherlands UK US

goveffect 0.1025***(5.94)

-.0618***(5.20)

0.3319***(4.75)

0.2657***(12.73)

0.1833***(7.46)

0.3776***(3.60)

polstab 0.0432***

(2.82)

0.1896***

(6.92)

0.3533***

(6.31)

0.1542***

(3.87)

0.0058

(0.82)

0.2273***

(4.90)regqual 0.0785***

(4.42)-.0717***(8.37)

0.4682***(5.31)

0.3704***(14.27)

0.3466***(20.72)

0.2641***(5.75)

rulelaw 0.2683***(11.42)

0.3427***(12.28)

0.9523***(10.74)

0.4223***(14.88)

0.3380***(21.12)

0.08872(1.14)

voice 0.0801***(6.40)

0.1642***(13.42)

0.1289***(5.79)

0.1802***(9.24)

0.1701***(11.6)

0.2874***(7.72)

corruptco 0.2507***(11.27)

-.1425***(12.43)

0.3621***(6.54)

0.1086***(2.70)

0.1003***(5.65)

0.1163*(1.80)

*** significant at = .01; ** significant = .05; * significant = .10

The estimated results are from these specific donor equations are presented in table 2. Two general

conclusions emerge from the estimates presented in table 2. Generally, there is a positive correlation

between governance indicators and aid flows from the bilateral donors to African countries. With a

few exceptions, there tends to be a positive and statistically significant correlation between bilateral

aid flows from these donors and improved governance, at the margin. The other observation is that

each donor emphasizes different aspects of governance in its aid giving. For example, while bilateral

aid from Denmark responds more to improvements in the rule of law and corruption control than to

political stability or regulatory quality, bilateral aid from Japan responds more to improvements in

regulatory quality. On the other hand US bilateral aid flows to Africa responds more to government

effectiveness than to the rule of law or corruption control. Surprisingly, French bilateral is negativelycorrelated with government effectiveness, regulatory quality and corruption control. This may stem

from the fact that French bilateral aid is allocated mainly to former French colonies which tend to be

among the poorest, institutionally least developed, and the most fragile countries in Africa.

3.2.2 Governance and Aid after Cold War:

Donors started to seriously emphasize governance as a condition for giving aid at the end of the

century after the cold war. If donors truly implement their governance policies, it implies that aid

flows to African will more sensitive to governance post adoption of this policy than before the

adoption of this policy. Since implementation of the governance took force at the beginning of the

century, we created a dummy variable that equal 1 if the period under consideration as 2000 or later,

zero otherwise and interacted this dummy variable with the governance variables. We added these

interaction terms to the equation in our estimation. These estimates are presented in table 3. The

coefficients of the governance variables remain positive and statistically significant at conventional

levels. However, as the estimates at the bottom of table 3 show, the interaction term for regulatory

quality and corruption control are positive and significant, those of rule of law, voice and

accountability and government effectiveness are insignificant while those of political stability is

negative and significant and the rest are insignificant.


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The negative coefficient on the dummy interaction for political stability may suggest that bilateral aid

donors may have been less sensitive to political stability in aid allocation after the cold war ended.

On the other hand, they have marginally increased their sensitivity to corruption control and

regulatory quality in aid allocation. The estimates indicate that aid flows to Africa from DAC

countries became less sensitive to corruption control and political stability but more sensitive to

regulatory quality. We note that these sensitivity changes are so small as to be economically

significant. The general conclusion that emerges from this discussion is that aid flows to Africa has

not responded to this policy change.

Table 3: Coefficient estimates of governance variables: aggregate data

DPD

governance coefficient t-statistic

Goveffect 0.3556*** 9.03

Polstab 0.8139*** 22.46

Regqual 0.2605*** 12.29Rulelaw 1.898*** 23.72

Voice 0.6488*** 30.54

corruptcont 0.2818*** 13.82

Govteffct*d 0.0086 0.60

Polstab*d -0.0356*** 2.83

Regqual*d 0.0434*** 3.81

Rulelaw*d 0.0125 1.14

Voice*d -0.0080 0.40

Corruptcont*d -0.0272** 2.07*** significant at = .01; ** significant = .05, * significant at = .10.

The estimates presented in tables 1-3 indicate that in general, aid flows to African countries is

positively correlated with good governance as measured by the World Banks indices of good

governance. The results also show that in with the exception of regulatory quality, the correlation

between aid flows to Africa and all indices of governance either stayed the same or decreased after

the cold war. This may suggest that donors did not put any more emphasis on governance in aid

giving after the cold compared to the pre-cold war period in spite of the rhetoric of increased

emphasis on improved governance as a condition of giving aid. The results also suggest that to the

extent that donors were interested in improved governance, their interest went as far as governance

affected the efficiency of economic policy formulation and implementation, hence economic growth.

4. Implementation of Governance-Aid Conditionality in Africa: Case StudiesAs argued above, bilateral aid donors have made improved governance in recipient countries either a

condition for receiving increased aid or as an objective to be achieved with increased aid flows.

How have bilateral aid donors implemented this policy change in Africa? One can only get a better

understanding by looking at country case studies. In this section we look at the cases of two

countries in Africa. These case studies will highlight two things: (a) the seriousness with which

donors implemented governance conditionality or governance aid, and (b) how African countries

responded or adapted to these governance conditionalities.


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4a. Ghana

Ghana provides an interesting case study of the relationship between god governance and aid

inflows to recipient countries. Since the establishment of constitutional rule in 1992, Ghana has had

five highly competitive, peaceful and fair elections with the executive and legislature changing hand

to the opposition party on two occasions. The country is generally peaceful with little ethnic

conflicts, a vibrant free press and civil society, as well as attempts at decentralizing government

functions. It also has a relatively good human rights record with sharply decreasing poverty rates

and there are attempts to promote gender equality. Indeed the EU report notes:

The democratic process has made impressive gains in Ghana over the past decade.

Ghanas gains in press freedoms are unmatched by other countries in the region or

by countries with a similar income per capita, Equally impressive are Ghanas gains in

civil liberties and its continued progress on political rights and the protection of

human rights.

As a result, Ghanas political rights, civil liberties and freedom of the press rankings

are not only amongst the best in Africa but are also as good or better than solidly

middle-income countries such as Argentina, Brazil, Mexico or South Korea.

Democracy has become a strong comparative advantage.

Ghana-EC, 2007, p. 6

However, democracy and other manifestations of governance need improvements. If donors care

about governance and its improvement in aid allocation, Ghana should provide a test case in which

not only more aid will be given on account of good governance achieved but also more aid will be

given to encourage further improvements and consolidation of good governance. In this sub-

section, we look at how bilateral aid from the EU, four members of the EU---Denmark, Germany,

Holland, and UK---as well from the US has responded to good governance in Ghana in the 1990s and

2000s.

In 1992 Ghana promulgated a new democratic constitution on which the then military dictatorship

stood and won elections to return Ghana to democratic rule. Between 1992 and 2009, the latest date

for which data is available, total bilateral aid from DAC countries to Ghana increased from 343 million

US dollars (USD) to 856 million USD (see data appendix and figure 2). Total net aid flows from all

sources to Ghana reached a high of 1.586 billion USD in 2009. The increased aid suggests asubstantial increase in bilateral aid to Ghana during the period under consideration. The increase in

aid flow was by no means uniform. Bilateral aid decreased from 343 million USD in 1992 to about a

little over 200 million USD in 2001, it rebounded sharply from 2002 after the first successful and

peaceful transfer of political power in 2002 reaching a high of 856 million USD in 1999 after another

peaceful transfer of political power in 2008. Total net official aid flows to Ghana follow a similar

pattern as the flow of bilateral aid. Ghana also received 3.5 billion US dollars in debt forgiveness

under the Heavily Indebted Poor Country (HIPC) program beginning in 2007. In addition, Ghana

received 500 million US Dollars from the US Millennium Challenge Grant to support agricultural and

rural development programs beginning in 2007. On the surface then, it appears that both bilateral

donors and multilateral donors reward Ghana because of good governance.


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Table 4: Total and Sources of Aid to Ghana: 1988-2009

year Totalaid Denmark EU France Germany Netherlands UK US DAC

1988 966000000 10600000 20400000 16000000 26400000 20700000 49900000 6000000 256000000

1989 1210000000 3700000 19600000 10400000 47200000 20700000 71900000 23000000 371000000

1990 851000000 3190000 20100000 11700000 66000000 24800000 22300000 13000000 285000000

1991 1290000000 3460000 27100000 23600000 125000000 15100000 53800000 25000000 476000000

1992 861000000 6140000 62100000 43900000 24000000 41500000 55500000 27000000 397000000

1993 882000000 13200000 60900000 23600000 51200000 17800000 36900000 46000000 380000000

1994 721000000 16700000 42400000 27000000 23900000 21800000 28900000 53000000 376000000

1995 793000000 35300000 53800000 23400000 43700000 29500000 20900000 54000000 403000000

1996 833000000 42300000 73700000 15900000 37100000 22700000 33600000 30000000 424000000

1997 678000000 39000000 24600000 12500000 42400000 17300000 38100000 44000000 321000000

1998 972000000 35300000 32500000 4570000 32100000 21800000 64600000 34300000 407000000

1999 825000000 38000000 25600000 3760000 37600000 11800000 91800000 40900000 381000000

2000 843000000 37200000 16400000 3280000 32000000 27600000 79900000 63300000 3920000002001 985000000 39700000 18100000 4450000 23800000 11400000 97800000 53500000 405000000

2002 997000000 51500000 42400000 10200000 34000000 59600000 122000000 68900000 447000000

2003 124000000 56700000 71200000 18200000 46800000 65800000 124000000 83900000 555000000

2004 1610000000 59700000 63500000 74500000 65600000 153000000 280000000 80400000 992000000

2005 1300000000 56100000 77400000 37900000 66400000 70500000 120000000 66900000 693000000

2006 1330000000 64300000 61900000 23200000 59800000 97000000 167000000 68400000 657000000

2007 1180000000 72100000 85200000 41600000 52700000 142000000 152000000 70700000 795000000

2008 1260000000 77900000 11800000 43000000 71700000 120000000 151000000 79500000 844000000

2009 1580000000 88100000 167000000 49700000 61200000 98300000 154000000 151000000 987000000

Source: OECD-DAC, Development Aid at a Glance: Statistics by Region, Africa, 2011 edition

On average, the leading bilateral donors to Ghana during the period under consideration in terms

absolute volume of aid flows were the United Kingdom, EU Institutions, the United States, Netherlands,

Canada, Denmark, Germany, and France in that order. In 2009, Ghana received 3% of net ODA flows to

Africa compared to Ethiopias8% and Sudans 5%. Ghana was the 10th largest recipient of ODA in Africa in

2009. Of this amount only about 13.1% or 197 million USD went to fund government and civil society of

which governance is very small part (see a discussion of governance funding below). This pattern is

repeated across individual donors. For example only 5.9 million of UKs 154 million USD or 3.83% of aid to

Ghana went to finance government and civilsociety. As discussed elsewhere in this paper, most ofthis aid went to finance governance decentralization as well to strengthen the legislature but not to

develop governance as broadly conceived.8 This suggests that bilateral aid donors do not emphasize

governance in aid funding as the rhetoric on the importance of governance in the development process

will suggest.


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Figure 2: Net Aid Flows to Ghana, 1988-2009

Source: OECD-DAC, Development Aid at a Glance: Statistics by Region, Africa, 2011 edition.

By far, the EU, as a group and individually, has been and continues to be the largest provider of external

assistance to Ghana. EU aid to Ghana has been guided by the general objectives of EU external policy of(i) sustainable economic and social development of the developing countries, and more particularly the

most disadvantaged among them. (ii) the smooth and gradual integration of the developing countries

into the world economy, and (iii) the campaign against poverty in the developing countries. However,

what is important is not the general principles of aid policy but how these general principles are

implemented in recipient countries as revealed by what donors fund. As the data shows, it appears that

EU aid to Ghana has focused mainly on economic development and governance come in only to the

extent that it improves economic efficiency.

As the data in table 4 and figure 2 shows, aid flows to Ghana from both EU institutions through the EC

Common Fund and from individual member countries increased consistently after the restoration ofdemocratic governance in 1992. Similarly aid flows from the US increased sharply during this period

following the trajectory charted by aid from EU sources. While aid flows to Ghana slowed in the 1990s, it

increased sharply after the peaceful transfer of power from one political party to another in 2002. It

appears that bilateral aid flows to Ghana sharply increased when it became clear that democracy was

taking hold, human rights and civil liberties were being protected and that press freedom was

0

200000000

400000000

600000000

800000000

1E+09

1.2E+09

1.4E+09

1.6E+09

1.8E+09

1985 1990 1995 2000 2005 2010 2015

Totalaid

Denmark

EU

France

Germany

Netherlands

UK

US

DAC


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guaranteed. In this regard, it appears that generally donors were honoring their rhetoric on the

connection between aid flows and improved governance.

While bilateral donors appear to have rewarded Ghana with more aid on account of good governance,

there is evidence that donors did not actively support the continuation and consolidation of good

governance by funding governance programs. It appears that the focus of increased bilateral aid to

Ghana was on increased economic growth rather improved governance. According to Country Strategy

paper and National Indicative Program for 2008-2013 EC focal sectors of the 10 th EDP for Ghana were: (i)

Transport and Regional Cooperation, (ii) Governance, (iii) General Budget Support, and (iv) Other

programs. It must be noted that governance was defined to include decentralization including the

construction of rural infrastructure. Of the 367 million Euros EU aid devoted to these programs over the

period, 26% or 95 million Euros were budgeted for governance.

Out of the 95 million Euros devoted to governance, 83 million Euros is earmarked for the construction of

rural infrastructure with only 12 million Euros or 3% of the entire development budget devoted to

governance (civil society capacity building (2%) and improving the capacity of the Ghanaian Parliament

(1%)). This reinforces the belief that EU aid is mainly given for purposes of increasing economic

development. It interesting to note that the 2007 EC-Ghana report noted that .. have identified a

number of structural weaknesses that militate against accountability and undermine the oversight of the

legislature. In addition, some kind of patron-client relations in the civil service has made it difficult to

reform the executive. Given these observations, one would have expected bilateral donors to give

more attention to improved governance in their aid giving than has so far been given.

Besides aid from EU Institutions which is administered from the European Common Fund, each EU

member country has its own aid program for Ghana. The major EU bilateral donors to Ghana have been

Denmark, Germany, the Netherlands and the UK. As can be seen from fig 2 and the table on which it is

based, aid from these countries followed the same trajectories of total aid to Ghana. Net aid flows to

Ghana from these countries, at best, stagnated through the 1990s and rose sharply after 2002 when

democracy, human rights, and freedom of the press were strengthened. Of particular note is the sharp

increase in aid from the UK aid to Ghana after 1992. US aid to Ghana rose gradually or held steady over

the period from 1988 but, as with aid from other major donors, rose sharply after 2002 and indeed

continues to grow relatively fast even at the end of the first decade of the 21st century.

As with aggregate aid to Ghana, it does not appear that any of the major donors to Ghana actively

funded governance programs in any meaningful way as the funding for governance programs were

almost nonexistent with the little amount of governance funding devoted to either decentralization or

improving the functions of the ministries and departments. Even EU member countries that generally

tend to adopt a broader conception of governance, the data suggests that governance receives little

funding compared to aid funding for economic projects. This is certainly true of aid from the US and the

major EU donors---Denmark, Germany, Netherlands and UK.


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This perception of underfunding governance programs is confirmed by Akwetey (2007). Indeed the

Danish minister of Development when asked about funding for governance in Ghana is reported to have

retorted that Ghana was doing so well in governance that she will not talk about governance since it

need not be supported in that area. It is also clear from the MCA selection criteria that governance as

broadly conceived has never a priority of US aid giving; its focus has been on the technocratic conception

of governance. This suggests that donors used aid to reward Ghana for establishing relatively good

governance; however, they did not provide resources to broaden and consolidate good governance in

the broader sense of the concept.

4b. Ethiopia

While Ghana presents a case of improved improving governance with relatively good growth record in

recent times, Ethiopia represents a case of rapid economic progress with government led structural

transformation in recent decades although there are concerns about its governance record. After years

of stagnation, Ethiopias economy has grown rapidly since the introduction of electoral politics in the

late 1990s. Indeed aggregate GDP has grown at the rate of about 8.2% since 2000 while per capita GDP

has grown at an average rate of 5.53 during the same period. This compares to a GDP growth rate of

2.38% and per capita growth rate of -0.76% the 1990-1999 decade.9 The former period coincides with the

period of multi-party democratic governance in the Ethiopia while the latter period coincided with

either the transition or the non- democratic period of governance. In addition to rapid economic

growth, Ethiopia has also dramatically decreased the incidence of poverty, especially among the rural

population.10

Unlike Ghana which has been hailed as a leader in improving governance in the African region, Ethiopia

has not been noted for improved governance, equitable distribution and improved human rights. While

there have been open and fair elections in the last two to three election cycles (with the ruling partywinning), there is not much evidence of improved human rights, growth and development of civil

society, nor is there evidence of a growing, vibrant, independent free press or a strong opposition

movement. Indeed there is anecdotal evidence that aid has been used as instrument of suppression in

Ethiopia by the government.11 The combination of increased inflows of aid and rapid economic growth

in Ethiopia in recent decades may suggest that the government of Ethiopia has found a way to allocate

aid resources efficiently to increase economic growth. The increased flow of aid to Ethiopia may

therefore be consistent with the technocratic view of governance as the ability to provide government

services and formulate and implement government services effectively without regard to other aspects

of governance.

Ethiopia, with an estimated population of about 90 million in 2011 (CIA World Factbook) is the largest

recipient of ODA in Africa and the third largest recipient in the world (OECD-DAC: Development Aid at a

Glance, 2011). In 2009, the latest year for which data is available, Ethiopia received a total net ODA inflow

of 4.049 billion UDS of which 2.057 billion USD was bilateral aid from DAC countries. ODA flow per capita

to Ethiopia in 2009 was about 49 USD. This represents about 8% of net ODA flows to Africa in 2009. As a

ratio of income, ODA inflows represented 13.2% of GNI and about 33% of per capita GDP in 2009. ODA


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flows to Ethiopia is not only large in comparison to flows to other African countries, it has grown very

rapidly, especially after the advent of multiparty electoral democracy. Between 1999 and 2009, total net

ODA flows to Ethiopia as well as bilateral ODA inflows to Ethiopia increased six-fold from 656.18 million

USD to 4048.99 million USD and 349.94 million USD to 2057.2 million USD respectively). In per capita

terms, ODA inflow increased by 4.7 times during the same period (from 10.20 USD to 49 USD). In

comparison, ODA flows to the whole of Africa increased by a mere 28% (38.415 billion USD to 49.081

billion USD over the period under consideration. By all accounts, Ethiopia is one of the aid darlings in

Africa. As in the case of Ghana, there is not a separate line item in the aid statistics of Ethiopia that

shows how much aid is devoted exclusively to building or improving governance institutions.

By far the leading donor to Ethiopia is the United States of America, accounting for an average of 600

million USD annually over the last five years, followed by the United Kingdom, Canada, Italy, Germany,

Netherlands, Ireland, Japan, Sweden, and Norway in that order. While the annual amounts of ODA flows

from these sources may vary from year to year, it appears that the relative rankings of these donors have

not changed over a long period. About 20% of aggregate ODA is devoted to the education sector, 17.9 to

other social services, 17.3% to economic infrastructure, 16.2% to humanitarian aid, 9.5% to education,7.7%

to program assistance, 7.0% to production sectors, and 4.4% to other sectors. Each donor emphasizes

different sectors in its aid allocation. As in the case of Ghana, the largest bilateral donor to Ethiopia, the

U.S. focuses its aid on the social sectors, economic infrastructure, and productive sectors of the

economy. Similarly the UK focuses its aid giving on programs to reduce poverty without regard to the

quality of the broader measures of governance. The EC has budgeted about 644 million Euros in aid to

Ethiopia during the 10th EDF. Out of this, 49 million Euros or 8% is supposed to be devoted to

strengthening government governance institutions. However this part of the aid program was not

initiated until 2009. In general, there is no evidence that donors have substantially increased resources

to promote governance in the broader sense.

How has aid affected governance and how has the quality of governance affected the flow of ODA to

Ethiopia? On the first question, it does not appear that aid flows have improved or expanded the quality

of governance in Ethiopia. As indicated above, it appears that the Ethiopian government has improved

its ability to provide government services and formulate and implement economic policies effectively

since the introduction of electoral democracy in the 1990s. In this technocratic sense, governance in

Ethiopia has improved with the introduction of electoral democracy. On the other hand, there is no

evidence that governance, broadly defined to include human rights, an independent and vibrant press,

as well as the growth and development of civil society organizations, has improved much in Ethiopia

since the establishment of electoral politics in the 1990s. For example, while civil society organizations

participate in discussions involving the EU and the Ethiopian government, these organizations do not

engage in any discussions with the government. In addition, the government passed laws in 2009 the

restrict the space for civil society operations; in particular the law barring these organizations from

receiving funding from external sources is seen as extremely restrictive. However, bilateral aid flows to

Ethiopia continues its upward trend.


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If aid is given in response to improved governance, as broadly defined to include human rights,

democracy, voice and accountability as well as the development of civil society, one would expect that

bilateral aid to Ethiopia would not increase as much as it has grown in Ethiopia over the last decade and

half. Alternatively, if aid is used as a mechanism to build improved governance institutions, one would

observe a relatively large or an increasing proportion of ODA devoted to governance in Ethiopia, a

phenomenon that is not observed. In this sense one may argue that donors are rewarding Ethiopia with

increased ODA flows for improved governance in the technocratic sense. Even when there are instances

of gross lapses in governance by the Ethiopian government, donors do not cut bilateral aid to Ethiopia,

they only change the modalities of aid delivery to Ethiopia. For example following the post-election

violence in Ethiopia, European countries and the EU suspended direct budget support to the

government of Ethiopia and diverted tie aid into the Protection of Basic Services (PBS) program run by

state governments. However, the state governments were all run by the ruling party in power and it is

alleged PBS program was used for further repression of political opponents.

The two case studies, illustrating cases of relatively good and improving governance in the broader

sense and not so well developed and expanding governance in the broader sense, combined with

increased aid flows may suggest that while donors seem to talk about conditioning aid on improved

governance in the broader sense, in reality they have not practiced in Africa. Where they are concerned

with governance, it has to do with reducing corruption and improving the capacity of government to

formulate and implement economic policy and reducing poverty. Concerns about human rights,

deepening democracy, freedom of the press, and other governance institutions are not made

requirements for increased aid nor is much aid provided to develop these aspects of governance.

5. Varieties of Aid and Forms of Governance for Development in Africa in 2010?As a direct consequence of the Global Recession of 2008-2009 and the continuing

financial instability left in its wake, the G20 has moved into the putative position of

premier forum for global economic governanceBetween the first two G20 summits

nations raised their commitment to spending up to a combined 1.8 percent of GDP.

London added the largest pledge in history, over $1 trillion. (Cooper 2010: 741)

Africa is addicted to aid. For the past sixty years it has been fed aid. Like any addict it

needs and depends on its regular fix, finding it hard, if not impossible, to contemplate

existence on an aid-less world. In Africa, the West has found its perfect client to deal

with. (Moyo 2010: 75)

We have offered an array of financing alternatives: trade, FDI, the capital markets,

remittances, micro-finance and savings. It should come as no surprise that the Dead Aid

prescriptions are market-based, since no economic ideology other than one rooted in

the movement of capital and competition has succeeded in getting the greatest

numbers of people out of poverty, in the fastest time. (Moyo 2010: 145).


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5.1 Shrinkage in traditional OECD DAC ODA from old North

Of 33 members in the OECD, the DAC of 24 members includes South Korea (www.oecd.org/dac) and now

recognizes support for peace-building involving new actors like national armies and private security

companies. The Monterrey Consensus on aid effectiveness of ODA sought to advance the MDGs: a

decade-long process at the start of new century leading to Busan before the end of 2012. But despite

endless effort, it was not enough to meet growing demands and needs, so innovative sources became to

be identified as in e) below. Ironically, the Monterrey Consensus has been articulated as the erstwhile

Washington Consensus fades, possibly to be superseded by a Beijing Consensus? Significantly it focuses

on ODA quality rather than quantity, reflective of donors priorities in an era of economic difficulty and

contraction.

5.1.a Emerging/Rising Donors

Aside from the BRICs, in the post-bipolar world, several new sources of ODA have appeared, in part as

the EU of 27 has insisted on new members like Bulgaria and Romania becoming extra-regional donors.

Such donors bring their own histories and identities with them in terms of policy emphases in ODA. Aside

from the BRICs, now BRICS, most of this subset are identified in Goldman Sachs Next -11, other than

South Africa (www.idrc.ca).

5.1.b Expansion in ODA from emerging economies/powers in second world

The four BRICs (now five BRICS), especially China and India (Alexandroff and Cooper 2010, Cheru and Obi

2010), are the core of the new second world (Khanna 2009). Their emerging role is reflected in

competing inter-regional conferences outside the traditional EU and North Atlantic: trend-setting annual

Forum on China-Africa Cooperation (FOCAC) (Taylor 2010) and more modest India-Africa Forum both

echoing the established Japanese summits already four Tokyo International Conferences on AfricanDevelopment (TICAD) (www.ticad.net) and anticipating the September 2010 Korea-Africa Ministerial

ahead of the G20 in Seoul: Rising Africa, Together with Korea (KOAFEC), itself a curtain -raiser for Busan

deliberations on ODA effectiveness at the end of 2011.

5.1.c Burgeoning roles of new private foundations/FBOs/partnerships

In addition to a range of increasingly established Arab/Islamic/Middle East funds such as Gulf/Kuwait/OIS

etc., a set of non-traditional private foundations, novel faith-based organizations (FBOs) and myriad,

heterogeneous partnerships are increasingly salient, especially in the public health sector. The new

foundations include Clinton (www.clintonfoundation.org) and Gates (www.gatesfoundation,org) from

the North and in the South, AKF (www.akdn.org), BRAC (www.brac.net) and BRAC University(www.bracuniversity.net), Grameen (www.grameenfoundation,org), Mandela

(www.nelsonmandela,org), Mo Ibrahim and related African governance index

(www.moibrahimfoundation.org) and Tata Trust (www.tata.com).

FBOs likewise tend to be contemporary although some established faith communities have gone

through major metamorphoses or rebranding (e.g. Progressio (www.progressio.org.uk), previously the
http://www.oecd.org/dachttp://www.oecd.org/dachttp://www.oecd.org/dachttp://www.idrc.ca/http://www.idrc.ca/http://www.idrc.ca/http://www.ticad.net/http://www.ticad.net/http://www.ticad.net/http://www.clintonfoundation.org/http://www.clintonfoundation.org/http://www.clintonfoundation.org/http://www.gatesfoundation%2Corg/http://www.gatesfoundation%2Corg/http://www.gatesfoundation%2Corg/http://www.akdn.org/http://www.akdn.org/http://www.akdn.org/http://www.brac.net/http://www.brac.net/http://www.brac.net/http://www.bracuniversity.net/http://www.bracuniversity.net/http://www.bracuniversity.net/http://www.grameenfoundation%2Corg/http://www.grameenfoundation%2Corg/http://www.grameenfoundation%2Corg/http://www.nelsonmandela%2Corg/http://www.nelsonmandela%2Corg/http://www.nelsonmandela%2Corg/http://www.moibrahimfoundation.org/http://www.moibrahimfoundation.org/http://www.moibrahimfoundation.org/http://www.tata.com/http://www.tata.com/http://www.tata.com/http://www.progressio.org.uk/http://www.progressio.org.uk/http://www.progressio.org.uk/http://www.progressio.org.uk/http://www.tata.com/http://www.moibrahimfoundation.org/http://www.nelsonmandela%2Corg/http://www.grameenfoundation%2Corg/http://www.bracuniversity.net/http://www.brac.net/http://www.akdn.org/http://www.gatesfoundation%2Corg/http://www.clintonfoundation.org/http://www.ticad.net/http://www.idrc.ca/http://www.oecd.org/dac


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Catholic Institute for International Relations), Catholic Overseas Development Agency

(www.cafod.org.uk), Christian Aid (www.christianaid.org.uk), Catholic Relief Services (www.crs.org),

Islamic Relief (www.islamic-relief.com), Lutheran World Relief (www.lwr.org), Mennonites

(www.mcc.org), World Vision (www.worldvision.org) etc. (Belshaw, Calderisi and Sugden 2001, Clarke

and Jennings 2008: 1-45).

And (public-private) partnerships for development span a broad spectrum of issues and agencies,

reflective of varieties of capitalisms/companies and civil societies in Africa, concentrated in health such as

health systems strengthening/global health initiative; e.g. Global Alliance for Vaccines and Immunization

(GAVI) (www.gavialliance.org) advancing inexpensive drugs for ATM, Global Fund to fight ATM, the

International Finance Facility for Immunization (IFFIm) (www.iff-immunisation.org) and Medicines

Transparency Alliance (MeTA) (www.medicinestransparency.org) (Rushton and Williams 2011).

5.1.d Innovative sources of financing development

Global problems require bold solutions and the Currency Transaction Tax is one such innovative

idea. It proposes a small levy on foreign exchange transactions using the money raised to finance

development for the global public good. (NSI 2010: 1)

At the start of the 21st century, mid-decade global consultations led to the establishment of a Taskforce

on International Financial Transactions for Development which reported in 2010 on Globalizing

Solidarity: the case for financial levies It focused on the global financial sector as the most feasible and

appropriate point to levy such an innovative financing mechanism as it is uniquely placed as a channel

to redistribute some of the wealth of globalization towards the provision of global public goods.

(Leading Group 2010: 4).

In addition to i) a Global Solidarity Fund (CSF) for global public goods and ii) a Currency Transaction Tax

(CTT), other innovative sources suggested for financing development include:

iii) airline ticket levy advocated by Spain and South Korea for delivering ATM vaccines with support from

the Clinton and Gates Foundations: US$390 million collected in 2008;

iv) carbon taxes/trading, but which catalyst(s)/criteria? Market/state/civil society-driven? How to relate to

UN Intergovernmental Panel on Climate Change (IPCC) (www.ipcc.ch) and UN Framework Convention

on Climate Change (UNFCCC) Clean Development Mechanism (www.cdm.unfsss.int) etcetera?

v) climate change funds such as UN collaborative program (FAO, UNDP and UNEP) on Reducing

Emissions from Deforestation and Forest Degradation in Developing Countries (REDD) (www.un-

redd.org) and World Bank Global Environmental Facility (GEF) (www.thegef.org) with/out civil societydimensions? From Kyoto to Marrakesh and from Copenhagen COP 15 and Cancun COP16 to Durban COP

17 before years end?

vi) controls on money-laundering (PWYP/EITI) including Financial Action Task Force on Money

Laundering (FATF) ex-G8 and -OECD now over two decades (www.fatf-gafi.org) including Caribbean

regional FATF (www.cfatf-gafic.org) to regulate regional Offshore Financial Centers (OFCs) (Vlcek 2008).

This field now includes the analytic and advocacy work of the International Task Force on Illicit Financial

Flows and Capital Flight in the first decade of the 21 st century. Capital flight has now reached some
http://www.cafod.org.uk/http://www.cafod.org.uk/http://www.cafod.org.uk/http://www.christianaid.org.uk/http://www.christianaid.org.uk/http://www.christianaid.org.uk/http://www.crs.org/http://www.crs.org/http://www.crs.org/http://www.islamic-relief.com/http://www.islamic-relief.com/http://www.islamic-relief.com/http://www.lwr.org/http://www.lwr.org/http://www.lwr.org/http://www.mcc.org/http://www.mcc.org/http://www.mcc.org/http://www.worldvision.org/http://www.worldvision.org/http://www.worldvision.org/http://www.gavialliance.org/http://www.gavialliance.org/http://www.gavialliance.org/http://www.iff-immunisation.org/http://www.iff-immunisation.org/http://www.iff-immunisation.org/http://www.ipcc.ch/http://www.ipcc.ch/http://www.ipcc.ch/http://www.cdm.unfsss.int/http://www.cdm.unfsss.int/http://www.cdm.unfsss.int/http://www.un-redd.org/http://www.un-redd.org/http://www.un-redd.org/http://www.un-redd.org/http://www.thegef.org/http://www.thegef.org/http://www.thegef.org/http://www.fatf-gafi.org/http://www.fatf-gafi.org/http://www.fatf-gafi.org/http://www.cfatf-gafic.org/http://www.cfatf-gafic.org/http://www.cfatf-gafic.org/http://www.cfatf-gafic.org/http://www.fatf-gafi.org/http://www.thegef.org/http://www.un-redd.org/http://www.un-redd.org/http://www.cdm.unfsss.int/http://www.ipcc.ch/http://www.iff-immunisation.org/http://www.gavialliance.org/http://www.worldvision.org/http://www.mcc.org/http://www.lwr.org/http://www.islamic-relief.com/http://www.crs.org/http://www.christianaid.org.uk/http://www.cafod.org.uk/


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US$500billion per annum, so trade is neither free nor fair and such outward leakages are considerably

greater than resource inflows:

The problem is not new, but the liberalization of trade and finance, the growth of multinational

corporations and cross-border banking, all facilitated by technological innovation, have increased the scale,

scope and momentum of illicit flows and capital flight. Tackling illicit flows and capital flight to help

maximize domestic resource retention for developing countries will help kick-start a new era in

development and reduce corruption, crime and terrorism. (Commonwealth Foundation 2008: 23)

vii) digital solidarity fund (DSF), established in Geneva (www.dsf.fsn.org)

viii) remittance taxes as advanced in a debate animated by Spain and the UK to facilitate flows to

maximize efficiencies and minimize costs, with a couple of international conferences in London between

DfID and IBRD (www.dfid.gov.uk). Dambisa Moyo (2010: 133) notes that although remittances to Africa

are lower than flows to Latin America and Asia, at some $20 billion in 2006 they are by no means

insignificant. And the HDR 2009 on migration suggests that the inflow may have grown to over $30

billion (UNDP 2009: 162) with such flows being much larger than ODA for states like Nigeria (450%

higher) and Lesotho (340%) whereas lower for, say, Ghana (just 10%) or Uganda (50%) (UNDP 2009: 161).

Remit Aid is an NGO advocating remittance tax relief (RTR) along with remittance taxation for

international development (www.remitaid.org). The World Bank only discovered remittances from

migrations/diasporas as a significant form of North-South financial flows in the new century: over

US$300 billion per annum (www.ibrd.org). And finally, but by no means least,

ix) UNITAID is an international drug purchase facility to advance access to ATMs, originally established by

Brazil, Chile, France, Norway and the UK but now an extensive collaborative coalition of contributing and

beneficiary countries, NGOs, affected communities, foundations and the pharmaceutical industry

(www.unitaid.eu).

5.1.d Prospects for enhanced domestic resource mobilization (DRM)

In Canada, a NSI project at end of the last decade advanced domestic resource mobilization as a source in

five case studies in Sub-Saharan Africa Burundi, Cameroon, Ethiopia, Tanzania and Uganda - with a

focus on taxation and savings to reinforce the Monterrey Consensus for the MDGs (www.nsi-

ins.ca/english/research/progress/58.asp)

5.1.e Towards private/transnational forms of global governance?

While private authority beyond the state has become a popular theme of academic writing, the role

of stakeholders in the Southern hemisphere as objects and subjects of private transnationalgovernance has rarely been addressed in the literature. To fill this gap, this article examines three

private transnational governance (PTG) schemes in the field of global sustainability politics and their

relation to the South (Dingwerth 2008: 607).

Dingwerth treats the turn-of-the-century World Commission on Dams as one of his cases from the

global South: the Cape Town-based Commission which Sanjeev Khagram (2004) analyses as the first and
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only thus far such Commission which brought together private companies as well as states and civil

societies. Other contributions to such an inclusive governance perspective include Sanjeev Khagram

and Peggy Levitt on transnational studies, Klaus Dingwerth (2008) on private transnational

governance and Stuart Brown (2009 and 2012) on non-state transnational transfers. These hold

relevance for innovative sources/varieties of aid and other flows beyond ODA, providing a conceptual

frame for non-traditional assistance and governance.

The transnational perspective juxtaposes several disciplines, genres or strands: capital, civil society,

class, culture, informal sectors including crime/drugs/guns, logistics, migration/diasporas, sports, supply

chains etc. But The Transnational Studies Reader does not stretch to ODA (Khagram and Levitt 2007).

Khagram and Levitt (2006: 3-4) identify five distinctive foundations or varieties of transnational

studies: empirical, methodological, theoretical, philosophical and public transnationalism. We suggest

taking the transnational dimension of old and new ODA (e.g. states subcontracting delivery to NGOs or

MNCs) to extract from several of these traditions to bring them to bear on contemporary transnational

governance for development.

So the Internet Corporation for Assigned Names and Numbers (ICANN) (www.icann.org) despite its

sometime controversial debates and decisions, along with the World Summit on the Information

Society (WSIS) (www.itu.int/wsis) (Mathiason 2009, www.internetgovernance.org) may be a model of

PTG with relevance for assistance to the global South in the second decade of the 21st century:

The process of determining how to govern the Internet is a new frontier for international

institutions

In key respects the Internet Governance Forum (IGF) is not like any other current international

institution. It represents a new form of global organization

Unlike other areas where civil society, the private sector and governments interact, and where one

or another stakeholder tries to achieve primacy, the IGF started with early recognition that internet

governance, because of its borderless nature and the fact that the governance issues centered on

conflicts of different international regimes, was everyones concern but without a single actors

power. Thus a multi-stakeholder approach has had to evolve(Mathiason 2009: 146-147).

Likewise, North-South, especially East-South, transfers are likely to be increasingly heterogeneous in the

second decade of the new century, symptomatic of an evolving era beyond the simple inherited

dichotomy which was ubiquitous before the emergence of a new middle or second world.

5.2 Effects of New Entrants on Traditional Donors Governance Agenda

New sources of aid to Africa, especially those from the global south that do not impose strict

conditionalities on recipient countries, is bound to have an impact the governance agenda of OECD-DAC

donors that have traditionally provided aid to Africa. In what ways have the entry of these new donors

affected the governance agenda of traditional donors? It has been argued that Chinese aid to African

countries poses the greatest challenge to the governance agenda of traditional donors. Chinese aid to
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African countries is generally provided through direct production of goods and series in areas that

African countries are much in need of and for which the Chinese have the expertise (e.g. infrastructure

construction). Chinese aid processes provide a one stop shop in the sense that it provides the

financing, technical support and in most cases the construction of the projects directly. Unlike aid from

OECD countries which focuses on coordination among donors, Chinas aid is strictly bilateral in the

sense that the relationship is strictly between China and the African country involved, regional and

multilateral considerations take a backseat. More important, Chinese aid to Africa is provided without

conditionalities, especially the need for improved governance, imposed by OECD donors.

Chinese aid to Africa has often been criticized on several grounds by many commentators for not

concerning the lack of concern for human rights and other manifestations of good governance by the

recipient countries, that it is given as a way of gaining control over Africas considerable natural

resources, and that it is given for political interest of China rather than for the interest of the African

recipient. However, there is no empirical evidence to support these accusations. Dreher and Fuchs

(2011), using aid data from a large sample of developing countries over the 1956-2006 period, rejects the

nation that Chinese aid is rogue aid. Indeed they conclude that while Chinese aid is influenced by

political considerations, it is given for projects and causes that promote both the recipient and Chinese

interest and that Chinese aid allocation is no different from the way Western aid is allocated.

Development aid from the global South, especially China, and other sources challenge the current

paradigm (OECD-DAC) of aid giving in four distinct ways. First, aid from the global South, replaces the

current donor-recipient relationship in which donor funds only the projects and programs it is interest in

(i.e. donor determining what is important for the recipient country, with a partnership of equals. In this

model of aid, the donor does not determine what is important to the recipient, and does not dictate

how and in what form aid is given. Indeed China sees the African recipient as a business partner rather

than an aid recipient. Both donor and recipient negotiate on equal footing without the donor in a

superior position on account of historical relationships. More important, the recipient, by determining

priorities, truly owns the development agenda.

Second, the mode of provision is challenged by mutually beneficial aid. Current paradigm in aid giving is

that donors do not directly provide the services and goods that African countries need; financing the

provision of these goods and services instead. For example, in the area of infrastructure, OECD-DAC

donors rarely engage in the direct construction of infrastructure projects. In addition to financing,

African countries may lack the technical capacities to construct these projects. Chinese aid not only

finance these infrastructural programs, but also engage in the tender, design, and construction of the

projects by Chinese firms. This way, complex infrastructural projects such as railroads and hydroelectric

projects can be easily implemented with Chinese aid. This approach allows African countries to acquire

basic physical and economic infrastructure efficiently through Chinese aid while at the same time

providing markets and employment for Chinese firms and skilled labor.

Perhaps the major challenge to OECD-DAC governance posed by aid from the global south is that while

the former uses good governance as a condition for receiving/continuing aid, the latter argues for the


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sovereignty of, and non interference in the domestic affairs of the recipient country. As Hackenesch

(2010) points out, this could negatively affect the global norths governance agenda in several ways.

First it could negatively impact the effectiveness of the governance conditionality since the global south

now provides a condition free alternative to aid from the north which is conditioned on improved

governance. The Norths political dialogue with African countries may also be weakened by

engagement from donors from the global south because authoritarian regimes might be less willing to

engage is a dialogue on governance of there is an alternative source of aid that does not require such

dialogue. At best, African governments could use the existence of such sources of aid as a bargaining

chip on governance issues. This is likely to be the case in countries where improving governance might

have high adaptation cost to those in political power.

Finally, increased aid flows from the global south challenges the current paradigm on multilateralism

and aid coordination. The current paradigm requires coordination and harmonization among various

donors often leading to time, effort, and human capital wasted on many conferences often delaying the

delivery of aid. Add to this the reporting requirements to several donors with different requirements

and one recognizes that the prevailing aid paradigm of aid may require more resources to manage than

needed to govern the country. In contrast, aid from the global south generally shuns such

multilateralism and focuses on go alone basis. This not only saves time for African countries but also

resources in managing aid flows from a large number of countries, each with different governance

requirements. In addition, it allows for flexibility so that African countries can easily incorporate aid

into their development plans without having to worry about how aid impacts internal political coalitions

and structures.

How has aid from the global south in practice affected the governance agenda of the global north in

practice? Because aid from the global is still relatively small, its impact on the governance agenda of the

developed world through their aid giving may not be as strong as its potential suggest. However, some

African countries have used the existence of this source of aid as leverage to extract concessions from

the developed world. For example, Ethiopia has used the existence of Chinese aid and technical

assistance to extract concessions from European donors on its governance record. Similarly, Angola

has used Chinese aid and technical assistance as a bulwark against governance reforms by the elites in

power (Hackenesch: 2011).

5.3. A New Vehicle for Aid Delivery: Cash on Delivery

It has been argued my many observers that aid, whether bilateral or multilateral, has been ineffective ingenerating development in the developing world and Africa in particular (see for example Easterly: ).

Several reasons have been offered for the ineffectiveness of aid; among these are the usual principal-

agent problems, lack of incentives on the part of recipients to produce the expected outcomes, weak

institutions and policy environments, to downright corruption on the part of recipient governments. It

has been argued that one reason for failure of aid to generate the necessary outcome is the form in

which aid is given. Recipient countries have often criticized donors as being inflexible and paternalistic


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in terms of how to use aid as well as determining what approaches to use to achieve agreed- upon

outcomes. As a result of these criticisms, donors have begun to shift the emphasis to results based

financing---where the amount of financing is related to the outcome achieved. Among these are the

World Banks Global Program for Output-Based Aid, the EUs tranche systems, and the U.S. Millennium

Challenge Account.

Birdsall and Savedoff (2010) have proposed a variant of the performance based foreign aid called Cash

on Delivery (COD) aid, that will deliver aid only when an agreed upon outcome has been achieved and

independently verified by a third party. Essentially, a donor and recipient negotiate and agree on a

development outcome and how to measure that outcome. The donor agrees to pay a specified amount

upon the verification of the completion of the agreed upon outcome. A third party verifies the

successful completion or otherwise, after which the recipient receives the aid agreed upon earlier.

What are the advantages and disadvantages of this mode of aid delivery? What are the practical

problems in its implementation? How will this implemented in African countries and what are the

possible effects and difficulties of implementation in Africa. This section of the paper discusses these

issues. The first subsection discusses the advantages and disadvantages of COD, the next subsection

discusses the practical issues involved in its implementation, while the last subsection discusses the

problems and realities of its implementation in Africa, especially as it relates to the goal of improved

gov

bilateral aid good governance

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